Belgarath

So, suppose you have a bona fide "multiple employer plan" that decides to terminate. Do you see any "successor plan" problem if one or more of the individual employers then set up their own plans immediately? I'd think that there shouldn't be a problem because it isn't the "same" employer? I haven't yet done any research on this, just wondered if anyone had an opinion?

I asked for it, but I'm not sure it will be forthcoming. In the meantime, what I've been able to deduce, based upon my limited knowledge, as well as the comments I've seen thus far, lead me to believe that 417(e) rates must be considered. And while I have no idea what 417 rates are currently, it seems likely that they are lower than plan assumptions, and would therefore produce a higher lump sum value, which would need to be the one used?

Sorry - I didn't post that section because the benefit is supposedly being paid in a lump sum. But here it is: 5.8 DISTRIBUTION OF BENEFITS UPON DEATH (a) Qualified Pre Retirement Survivor Annuity (QPSA). Unless otherwise elected as provided below, a Vested Participant who dies before the Annuity Starting Date and who has a surviving spouse shall have the death benefit paid to the surviving spouse in the form of a Pre Retirement Survivor Annuity. The Participant's spouse may direct that payment of the Pre Retirement Survivor Annuity commence within a reasonable period after the Participant's death (but not later than the month in which the Participant would have attained the Earliest Retirement Age under the Plan if the Participant dies on or before the Earliest Retirement Age). If the spouse does not so direct, payment of such benefit will commence at the time the Participant would have attained the later of Normal Retirement Age or age 62. However, the spouse may elect a later commencement date, subject to the rules specified in Section 5.9. (b) Election to waive QPSA. Any election to waive the Pre Retirement Survivor Annuity before the Participant's death must be made by the Participant in writing (or in such other form as permitted by the Internal Revenue Service) during the election period and shall require the spouse's irrevocable consent in the same manner provided for in Section 5.7(a)(2). Further, the spouse's consent must acknowledge the specific nonspouse Beneficiary. Notwithstanding the foregoing, the nonspouse Beneficiary need not be acknowledged, provided the consent of the spouse acknowledges that the spouse has the right to limit consent only to a specific Beneficiary and that the spouse voluntarily elects to relinquish such right. © Time to waive QPSA. The election period to waive the Pre Retirement Survivor Annuity shall begin on the first day of the Plan Year in which the Participant attains age thirty five (35) and end on the date of the Participant's death. An earlier waiver (with spousal consent) may be made provided a written (or in such other form as permitted by the Internal Revenue Service) explanation of the Pre Retirement Survivor Annuity is given to the Participant and such waiver becomes invalid at the beginning of the Plan Year in which the Participant turns age thirty five (35). In the event a Vested Participant separates from service prior to the beginning of the election period, the election period shall begin on the date of such separation from service. (d) QPSA notice. With regard to the election, the Administrator shall provide each Participant within the applicable period, with respect to such Participant (and consistent with Regulations), a written (or in such other form as permitted by the Internal Revenue Service) explanation of the Pre Retirement Survivor Annuity containing comparable information to that required pursuant to Section 5.7(a)(5). For the purposes of this paragraph, the term "applicable period" means, with respect to a Participant, whichever of the following periods ends last: (1) The period beginning with the first day of the Plan Year in which the Participant attains age thirty two (32) and ending with the close of the Plan Year preceding the Plan Year in which the Participant attains age thirty five (35); (2) A reasonable period after the individual becomes a Participant; (3) A reasonable period ending after the Plan no longer fully subsidizes the cost of the Pre Retirement Survivor Annuity with respect to the Participant; (4) A reasonable period ending after Code Section 401(a)(11) applies to the Participant; or (5) A reasonable period after separation from service in the case of a Participant who separates before attaining age thirty five (35). For this purpose, the Administrator must provide the explanation beginning one (1) year before the separation from service and ending one (1) year after such separation. If such a Participant thereafter returns to employment with the Employer, the applicable period for such Participant shall be redetermined. For purposes of applying this Section 5.8(d), a reasonable period ending after the enumerated events described in paragraphs (2), (3) and (4) is the end of the two (2) year period beginning one (1) year prior to the date the applicable event occurs, and ending one (1) year after that date. (e) Consent. If the present value of the Pre Retirement Survivor Annuity derived from Employer and Employee contributions does not exceed $5,000 at the time of distribution, then the Administrator shall direct the immediate distribution of the present value of the Pre Retirement Survivor Annuity to the Participant's spouse. No distribution may be made under the preceding sentence after the Annuity Starting Date unless the spouse consents in writing (or in such other form as permitted by the Internal Revenue Service) to such distribution. If the value exceeds $5,000, then an immediate distribution of the entire amount of the Pre Retirement Survivor Annuity may be made to the surviving spouse, provided such surviving spouse consents in writing (or in such other form as permitted by the Internal Revenue Service) to such distribution. Any consent required under this paragraph must be obtained not more than one hundred eighty (180) days (ninety (90) days for Plan Years beginning before January 1, 2007) before commencement of the distribution and shall be made in a manner consistent with Section 5.7(a)(2). The present value in this regard shall be determined as provided in Section 1.41. (f) Alternative form of distribution. If the present value of the total death benefit does not exceed $5,000 at the time of distribution, then the Administrator shall direct the immediate distribution of the present value of the death benefit. Otherwise, to the extent the death benefit is not paid in the form of a Pre Retirement Survivor Annuity, it shall be paid to the Participant's Beneficiary in one lump sum in cash. (g) All annuity Contracts (if any) that are purchased under this Plan shall be non transferable when distributed. Furthermore, the terms of any annuity Contract purchased and distributed to a spouse shall comply with all of the requirements of the Plan.

Thanks. Non-governmental plan, subject to ERISA. I just don't understand how 417(e) doesn't apply (unless the plan assumptions produce higher benefit, which might perhaps be what the EA meant?) Death benefit is defined as: (a) Death prior to retirement benefits beginning. If a Participant dies prior to the Participant's Retirement Date, such Participant's Beneficiary shall receive a death benefit equal to the Actuarial Equivalent of the Accrued Benefit. Actuarial equivalent is defined as: 1.3 "Actuarial Equivalent" means a form of benefit differing in time, period, or manner of payment from a specific benefit provided under the Plan but having the same value when computed using Pre Retirement Table: 1971 GAM; Post Retirement Table: 1971 GAM, Pre Retirement Interest: 7%; and Post Retirement Interest: 7%. Notwithstanding the foregoing, the mortality table and the interest rate for the purposes of determining an Actuarial Equivalent amount (other than nondecreasing life annuities payable for a period not less than the life of a Participant or, in the case of a Pre Retirement Survivor Annuity, the life of the surviving spouse) shall be the mortality table and the interest rates specified above or the "Applicable Mortality Table" and the "Applicable Interest Rate" described below, whichever produces the greater benefit: (a) The "Applicable Mortality Table" means the mortality table prescribed by Code Section 417(e)(3). For any distribution with an Annuity Starting Date on or after the effective date of these Subsections and before the adoption date of these Subsections, if application of the amendment as of the Annuity Starting Date would have caused a reduction in the amount of any distribution, such reduction is not reflected in any payments made before the adoption date of these Subsections. However, the amount of any such reduction that is required under Code Section 415(b)(2)(B) must be reflected actuarially over any remaining payments to the Participant. (b) The "Applicable Interest Rate" means the annual rate of interest on 30 year Treasury securities determined as of the first calendar month preceding the first day of the Plan Year during which the Annuity Starting Date occurs. However, except as provided in Regulations, if a Plan amendment (including this amendment and restatement) changes the time for determining the "Applicable Interest Rate" (including an indirect change as a result of a change in the Plan Year), any distribution for which the Annuity Starting Date occurs in the one year period commencing at the time the Plan amendment is effective (if the amendment is effective on or after the adoption date) must use the interest rate as provided under the terms of the Plan after the effective date of the amendment, determined at either the date for determining the interest rate before the amendment or the date for determining the interest rate after the amendment, whichever results in the larger distribution. If the Plan amendment is adopted retroactively (that is, the amendment is effective prior to the adoption date), the Plan must use the interest rate determination date resulting in the larger distribution for the period beginning with the effective date and ending one year after the adoption date. In the event this Section is amended, the Actuarial Equivalent of a Participant's Accrued Benefit on or after the date of change shall be determined (unless otherwise permitted by law or Regulation) as the greater of (1) the Actuarial Equivalent of the Accrued Benefit as of the date of change computed on the old basis, or (2) the Actuarial Equivalent of the total Accrued Benefit computed on the new basis. A Participant's Accrued Benefit shall not be considered to be reduced in violation of Code Section 411(d)(6) because the Participant's Accrued Benefit is determined using the "applicable mortality table" and the "applicable interest rate."

Actuary is saying they don't, and while I make it a point not to argue with EA's 'cause I don't know much about DB plans, I just wondered if y'all agree?

You may be right! I'm in an uncharacteristically benevolent mood right now, so my cynical side (which normally has the upper hand) is temporarily repressed. As to the south Florida land, I think I already bought that - according to my deed, I apparently own all the land upon which Walt Disney World is built. With that and my stock in "I admire Congress" Buttons Manufacturing Corporation, I can retire in style...

I'm not sure I'd go quite so far. A plan sponsor whose plan doesn't satisfy the qualification requirements will still be subject to audit and penalty/disqualification. So there's still every incentive to have a plan that satisfies form and operation, just like before. It may just be more difficult, as an individually designed document with a mass of amendments is, at best, confusing, as Austin mentioned in such an entertaining fashion. At this point, the Announcement 2015-19 is for individually designed plans only. I suspect that the IRS will still want to encourage pre-approved plan documents, and I'd be surprised if they modify that program in any manner that encourages any abuse. But then, what do I know? You know what opinions are like...

Yeah, I had looked at that, and that's one reason I wondered if the IRS has allowed that for a VCP corrective contribution situation. I've heard one instance where they required the corrective contributions to be made, but they allowed them to be allocated to only current participants. Obviously, the plan sponsor would prefer not to make them at all. So, I was just wondering if anyone had actually submitted a VCP with some sort of similar situation. Thanks for the response.

Wondered if anyone had any direct experience with a VCP submission on a 403(b) plan, where the submission proposed no correction for minimal benefits that do not exceed a certain threshold. For example - a 403(b) plan incorrectly excluded certain part time employees. Many of these people worked there only a few days or weeks, and terminated employment. A corrective contribution might be only a few dollars, and the cost of locating, providing, and processing would be prohibitive. In such a situation, have you proposed no correction for benefits not to exceed, say, $25.00 or some other cutoff point, and if so, with what results? Also, I presume if you must make such payments, the check would be made out directly to the former employee, (similar to what is allowed for "orphan" contracts) as an annuity provider wouldn't even accept such payments for a non-active employee.

Why would self-correction procedures address this? By that I mean, if it is acceptable in the eyes of the IRS, why would any self-correction be involved? I'd be interested in any official citation as well, if anyone knows of one. It may just be one of those things where the IRS has addressed it at several conferences/public forums?

A SIMPLE plan has to do a VCP correction for improperly excluding employees for many years. Many of these former employees won't respond to employer letter asking them to set up a SIMPLE-IRA to receive a contribution. (amazing, isn't it?) Their current SIMPLE-IRA investment provider won't allow the employer to set up a SIMPLE-IRA for a former employee - they say the EMPLOYEE must set it up. Do you know of any vendors who will allow the employer to set up a SIMPLE-IRA on behalf of a non-responsive former employee? This really should be the broker's job, but the broker isn't doing it...

Another thought - it appears to me that is this situation, assignment of "FSO" status and "A-org" status is arbitrary. Is there any reason, if you were trying to simplify the situation, why partnership "X" couldn't be considered the FSO, and therefore make all the businesses one ASG under Proposed Reg. 1.414(m)-2(g)(2)?

I will be sooooooo happy when the PBGC (assuming the program is something that can be administered REASONABLY) will finally accept funds for missing participants. If done right, this will make life a whole lot easier for employers and TPA's. Bring it on!

By George, I think I've got it! Many thanks to you all!

Groan! I'm so confused now. I think this is what I misunderstood, and why I was concerned about getting better results than was warranted. So, going back to a numerical example - if the total employee population is 50 NHC, and 7 HC, and component plan 1 is going to cover 1 HC and 10 NHC: When testing for (a)(4) in component plan 2 - when I do the Ratio Percentage Test, I use ALL 50 NHC employees, and ALL 7 HC, and NOT just the 40 NHC and 6 HC actually in component plan 2? So, for garbage numbers to illustrate the point, suppose the EBARS of the HC's are: 1, 1, 1, 1, 3, 4, and 15. 15 (daughter) is in component plan 1. When I look at component plan 2 for (a)(4) testing, for the HC ratio, for rate group EBAR 3, I use 2/7, and NOT 2/6? And if I have 15 NHC in EBAR 3, (considering only those not in component plan 1) I use 15/50, and NOT 15/40? Again, my thanks, and my apologies for my confusion.

Yes, for 410(b). But once I get past 410(b), which passes with flying colors, then when I test component plan #2, and I'm passing nondiscrimination testing using rate groups, and passing the Ratio Percentage Test, (not the ABPT test) I'm considering only the HC and NHC in component plan #2, and not considering anyone in component plan #1. Right? that's what I was trying to get at, but I probably stated it poorly.

If I may, let me play Devil's Advocate for a moment. I don't for a moment dispute most of the points made. But, If I had reason to believe my remaining life expectancy was short, and my spouse (if I'm married) is amendable and will have sufficient assets, why is my being able to get a lump sum so evil? This would be a great thing in some circumstances. Or if the lump sum is made based on low current interest rates, and rampaging inflation returns in the future so that my monthly annuity is practically worthless - there are various scenarios one could posit. However, for policy purposes, with the greatest good for the greatest number, etc...I realize most people are better off with the monthly payment.

Hi Austin - I think I was posting this morning while you had already replied. So just to be SURE I understand what you are saying, when you say treating them as not benefiting, you are talking ONLY about 410(b), right? But for purposes of doing the rate group testing (and to be precise, the Ratio percentage test, NOT the ABPT) for component plan 2, I'm looking ONLY at those people in component plan 2. Not looking at any one in component plan 1. Agreed? If I seem paranoid, it's only 'cause everyone is out to get me...

Wondered what you'd do in this situation. I don't have a lot of details yet, so I'm making several assumptions to a possibly hypothetical, or possibly real, situation. And I'm hoping that I'm overthinking this, and it is simpler than I think. 1. You have four medical PC's, each owned 100% by a doctor. 2. You have partnership "x" - owned 25% by each of the 4 doctors. Partnership "x" does, let's say, all of the blood drawing and throat cultures for each of the 4 medical practices - that's all they do. 3. So, all of these are service organizations (health) and each doctor is an "FSO" and partnership "x" is an "A-org" for purposes of determining ASG status, as it regularly provides services to the PC's of each doctor. Now, it appears to me that this means there are 4 separate ASG's - one different one between "X" and each PC. Agree/disagree? I'm not finding solid guidance (well heck, not any guidance) regarding what has to be done once you determine that there are, in this case, 4 separate ASG's. The proposed regulations under 1.414(m)-2(g) give an example of determining that multiple ASG's exist, but that's as far as it goes. So, if PC "A" for Doctor Killjoy sponsors a qualified plan, for coverage, testing, etc., he must consider all employees of partnership "x." How the heck do you handle it when each PC has sponsored its own plan, doing their own thing, without considering the employees of partnership "x?" How would you even go about this? Do you have each PC test their own plan with partnership "x" employees only - and make sure coverage/nondiscrimination testing pass, and then somehow allocate the appropriate contribution amounts internally in partnership "x" to coordinate them for deduction purposes, based upon the relative amounts attributable to each partner's PC? For a simple example, suppose 3 of the 4 PC's contribute 5% to a straight PS plan. But PC 4 contributes 10%. In order to pass testing, let's say all of the employees of Partnership "x" have to receive 10% in order for PC 4 to pass. When it comes to allocating the PS expense in partnership "x" I presume any such expense would be allocated according their partnership agreement. Blech... As an aside out of curiosity - ASG plans I've run into have the plan sponsor being the FSO, do you see the A-orgs (or B-orgs)as sponsors very frequently?

Thanks Austin. This just might work - particularly given that for the ratio percentage test, 401(k) elective deferrals and matching are not included, which in this case helps.

Ok, thanks, so let me see if I'm getting this. Assuming I'm not using the average benefits test, I'm testing each component plan separately. So component plan one is tested on an allocations basis, and passes. Component plan two is tested tossing out all employees, either HC or NHC, that are included in component plan one. After doing this, we are left with 6 HC, and 40 NHC in component plan 2. If each rate group, of the remaining 6 HC and 40 NHC in component plan 2, can pass the ratio percentage test (which I think it can, as remaining HC EBAR's are very low) then life is good - don't need to move on to the ABPT, which will fail. And as I said in the first post, Gateway as a whole will pass anyway given the allocations. Or, is that not allowable?

Thanks for the response - and sorry to be dense, but can you elaborate a bit about what you mean on the testing of component plan 2? This may be the piece that I'm worried about missing - when actually doing the test, you do not include those people in component plan 1, right? So your rate group tests would be based solely on the participants in component plan 2, and the daughter wouldn't be a consideration?

Probably a mistake to even think about this on a Friday afternoon, but I'll give it a shot. Takeover plan, general tested allocation formula with 3 groups. Group 1, owner. Group 2, Head Honcho - (non-owner). Group 3, everyone else. Group 3 includes the owner's early 20's daughter. There are 7 total HC. There are 50 NHC, who are all in group 3. The daughter in group 3 is blowing the tests, 'cause this plan has very few young people. Group 3 is currently slated for an allocation of, let's just say, 4%. Proposed allocations are such that Gateway will be passed regardless. So, I wanted to see how far off base I am, because I'm sure I'm missing something. If you separated this into component plans, where the HC daughter is the only HC in component plan 1, and you put, say, 10 of the NHC with the lowest ebars into component plan one, and test it on an allocations basis, everyone in component plan 1 would be under a safe harbor allocation method with the same 4%. Coverage for the component plan would be NHC - 10/50 = 20%, and for HC, 1/7 = (rounding up) 15%, so component plan 1 passes 410(b). Then for component plan 2, you use the rest of the HC's (who have fairly low ebars) and use the rest of the NHC, and test component plan 2 on a benefits basis. Assuming it passes, then you just have 410(b), which gives you 40/50 = 80% for the NHC, and 6/7 = (rounding up) 86% for the HC, so you pass 410(b) as well for component plan 2. Have I got this all wrong? No need to be gentle - I left any ego back in the 90's with my lost youth... Thanks in advance.

If it is completely participant-directed, ("eligible individual account plan") then I don't think the 25% limitation applies, nor does the 10% limit apply. I'm assuming it is not part of a floor-offset arrangement. And of course assuming the plan document provides for it... You may want to take a look at ERISA 407, which should help to clear up some of your questions.

Very carefully. What I'd do, not that it is necessarily correct, is on Line 7a, I'd cross out the number of participants, and write in the correct number with a note to the effect of, "reduced loan correction fee schedule as per Revenue Procedure 2015-27 is being used." Then write in the correct amount where you'd normally put in the fee. I'd also make specific note/explanation of it in my cover letter. I'm sure there are other, (perhaps better) ways to do it.